As Grayscale’s troubles continue, the chances of Grayscale’s bitcoin trust being taken over have been rising questions. Buyers of Grayscale Investment’s troubled bitcoin trust are taking the initiative and positioning themselves for a protracted court battle because there are no liquidity options in the cards.
The strategy is to amass enough enraged GBTC investors to intensify the already-existing public pressure against Grayscale and its parent firm, cryptocurrency behemoth Digital Currency Group (DCG).
I am at a loss for words for the trust and support we’ve received. There are so many people and institutions doing their part to help us… this is truly a grassroots campaign and I am honored to be a part of it. We are on the right side of history. We will win. #freethebitcoin https://t.co/FReDELylDH
— David Bailey🇵🇷 https://redeemGBTC.com (@DavidFBailey) January 9, 2023
In recent days, industry players have been analyzing the potential for DCG to fail, attempting to predict what that may imply for Grayscale, Genesis, and its vast array of other companies. A loose coalition of crypto asset managers, TradFi types with skin in the game, and a grassroots movement led by bitcoin maximalists using the slogan “free the bitcoin” are leading the battle to save GBTC.
Valkyrie to get the stalemate?
Apart from DCG, Valkyrie has not been forgotten during the acquisition trials. The investor in digital assets, which runs its own, much smaller bitcoin trust, aimed at Grayscale in a letter written by Valkyrie CEO Steven McClurg.
McClurg suggested that Valkyrie, which now manages around $200 million in assets, take over GBTC. Several institutional cryptocurrency trading sources informed Blockworks that Grayscale’s “airtight” legal documents governing GBTC’s operations and who is in charge of them make the ambitious project impossible.
The head of the Valkyrie is aware of the optics. McClurg and his crew have experience handling the intricate workings of closed-ended financial products. Additionally, Grayscale finds it challenging to fend off seasoned TradFi types with credentials honed in the competitive realm of activism.
A deeper look into the process
Shares in closed-ended funds are often issued in limited quantities. Brokerages can facilitate the transfer of those holdings, usually through the secondary market (commonly called over-the-counter). Following the launch, there are generally no more shares issued, purposefully blocking the flow of new capital. Additionally, the manager often needs to repurchase them.
When investors join GBTC, new shares are issued, and Grayscale buys an equivalent quantity of bitcoin to prevent dilution. Technically, the car provides daily subscriptions.
However, only “technically,” as GBTC no longer accepts new private placements. There haven’t been any redemptions since Grayscale initially filed the trust with the SEC via Form D, a requirement for commingled funds conducting private placements of regulated securities, in the middle of the 2010s.
Valkyrie asserts it is certified to operate GBTC. McClurg and his staff must overcome many legal and regulatory obstacles to work with GBTC. No matter how much of the GBTC assets any collective can seize, according to two sources who are acquainted with the inner workings of the trust, it is just not conceivable for Valkyrie or anyone else.